Stock Market: Gold Rises, Stocks Fall, Treasury to Cut Auction

Markets seemed to shrug off Washington's failure today to arrive at a single plan for dealing with the U.S. debt ceiling.

As Republicans and Democrats continued to pursue separate solutions, the world's stock markets remained calm -- if a bit depressed. Major exchanges all closed down slightly. The Dow was down by 0.7 percent, the S&P 500 by .56 percent.

Only gold and the Swiss franc strengthened. Gold closed up 0.86 percent percent. Futures for the precious metal earlier in the day hit a record of $1,624.30 an ounce. The Swiss franc gained against the dollar.

U.S. Treasuries showed surprising resiliency, with the yield on 10-year Treasuries rising to 3 percent. Some observers took that as a sign that fears of financial catastrophe had been exaggerated. Guy Lebas, a fixed income strategist at Janney Montgomery Scott in Philadelphia, told Bloomberg he'd expect to see a bigger move if something "truly catastrophic" was on the horizon.

The U.S. Treasury announced today it would cut, for the first time since May, the quantity of four-week bills it plans to sell this week. On Tuesday it plans to auction $18 billion-worth, the smallest amount since April 2010. The action is seen as a way for Treasury to gain added flexibility in managing the nation's debt as the deadline for raising the ceiling -- Aug. 2 -- approaches.

A strategist at Bank of America Merrill Lynch in New York characterized the move as one of Treasury's last remaining tactics to avoid breaching the debt ceiling.

Earlier in the day, Secretary of State Hillary Clinton, in Hong Kong, sought to reassure Asian nations of the U.S. economy's health, reminding them that the country has recovered from such instability in the past. Clinton predicted that a debt ceiling deal would be reached before the Aug. 2 deadline to avoid an unprecedented default.

It is feared that if an agreement is not reached, the United States could lose its triple-A credit rating.

"The political wrangling in Washington is intense right now," Clinton said. "But these kinds of debates have been a constant in our political life throughout the history of our republic. And sometimes, they are messy.

"I am confident that Congress will do the right thing and secure a deal on the debt ceiling, and work with President Obama to take the steps necessary to improve our long-term fiscal outlook."

Both parties intensified their efforts today to break the deadlock.

Senate Majority Leder Harry Reid's latest plan would include $1.2 trillion in discretionary cuts in defense and non-defense spending, according to a summary of the proposal. It would achieve a further $1 trillion savings for the winding down of the Iraq and Afghanistan wars.

House Speaker John Boehner today unveiled a new variant of the Republicans' two-step plan, which he presented to Republican rank-and-file this afternoon behind closed doors.

The Republican plan would see $1.2 trillion in savings over 10 years and would increase the debt ceiling by less than $1 trillion. For the second step, a bipartisan committee would be created to identify further cuts by the end of this year.

Ongoing bipartisan talks over the debt ceiling broke down over the weekend. Senate Majority Leader Harry Reid stated in a letter Sunday that the talks ended "over Republicans' continued insistence on a short-term raise of the debt ceiling."

A senior GOP aide close to the failed bipartisan negotiations said Sunday that Boehner, Reid and Senate Minority Leader Mitchell McConnell all agreed on the general framework of a two-part plan, but according to the aide Obama said he would not agree to it, because it would force another vote on the issue.